DEARBORN, Mich. – The struggle over whether the $1.8 billion DFCU Financial will or will not become a mutual bank has entered its middle stage. Last week the credit union began sending out conversion vote ballots to its 160,000 members, along with disclosure packages which are meant to explain the vote and urge them to support the charter change. In addition, both the DFCU Owners United Group and the credit union have launched advertising campaigns in the region's smaller newspapers and Michigan state legislators and the governor have weighed in on the matter. Many were caught off guard by the credit union sending the ballots since it had not yet formally answered a letter from Linda Malec, spokesman for DFCU Owners United that sparked an NCUA request for a Supervisory Committee investigation into some of the credit union leadership's actions and communications in the conversion matter so far. But on March 20 the credit union's supervisory committee sent Malec and NCUA a three-page letter explaining that it had hired independent legal counsel who had determined that there was no conflict of interest in having the members of the credit union's supervisory committee become board members in the new bank. Because the board had not informed the supervisory committee of its plan until after it had voted to approve the plan of conversion, which included the payment of fees to board members as well, there could have been no conflict of interest, the committee said. The letter did not identify the independent counsel used nor did it discuss the possible conflict of interest in having the CU's supervisory committee having any further review of the credit union's conversion process after it knew about becoming bank board members should it pass. DFCU's March 20 letter also maintained that Mark Shobe had explained to members during the annual meeting that he and the other executive staff could buy stock from the newly formed mutual holding company, if the conversion gets that far, on the same terms as any other member. The supervisory committee ignored that Shobe had neglected to mention that he or the board members would have access to stock as part of their compensation packages in excess of that available to most members. The letter blamed NCUA's regulations, which require the boxed disclosure statement, for preventing the credit union from communicating in writing with its members about the conversion. It did not acknowledge that there are other ways of communicating besides writing to members and that NCUA's regulations do not prohibit those communications at all, a point NCUA has made several times in the past six weeks. Finally, the supervisory committee dismissed the member resolution passed at the annual meeting asking the board to withdraw the conversion application, essentially arguing there were too few people present to make the case. "Even had the members received information on the charter change," the letter wrote, "the opinion of 68 members on the issue is not relevant to, and could potentially mislead the 141,000 voting members of the credit union." Once they arrived, the disclosures didn't hold too many surprises as they generally followed a shorter form of the same disclosures other credit unions that have converted to banks and were advised by the Washington D.C. law firm of Silver, Freedman and Taff have used. Like previous conversion attempts, the CU estimated the cost of converting to become a mutual bank to be a little over $1.2 million dollars, just about what Community Credit Union spent in its conversion, according to information the credit union must provide in its mandated boxed statement that it sent with the disclosure materials and conversion vote ballot. Community Credit Union was a $1.4 billion CU that converted to a mutual bank last year after the vote and a court fight with NCUA. The total for DFCU Financial breaks down as the following: *
$5,400 for regulatory application processing fees *
$177,000 for printing *
$208,000 for postage *
$73,000 for mailing assembly *
$50,000 for an inspector of elections *
$115,000 for a "membership awareness campaign" *
$147,000 for consulting and other professional fees *
$350,000 for legal fees *
$3,000 for the special meeting on the matter *
$20,000 for stationery changes, and *
$60,000 for charitable contributions and cash prizes. As with other CUs which have faced conversion votes, DFCU told members that the effort cost it nothing in terms of staff time. The CU also claimed that it has $11.8 million dollars on deposit with the National Credit Union Share Insurance Fund that it would get back if it converted. The CU did not mention any possibility in the future that it might have to make a deposit to the FDIC. Like other converting credit unions advised by Silver, Freedman and Taff, DFCU accompanied its ballot and disclosures with slick advertisements for a raffle that voting members would be eligible to win. But in a new twist, DFCU indicated the winners would get not only money for themselves, but also money for whatever public school system they choose. According to the credit union's ballot and disclosure materials, DFCU will hold a raffle through which 20 CU members who vote in the balloting can win from $1,000 to $5,000 and then donate a matching prize to the Michigan public school district of their choice. The CU maintains the raffle outcome will not depend on how the members voted. DFCU CEO Mark Shobe also said in the disclosure documents that the eventual issuing of stock under a mutual holding company structure would also be used, in part, to create a charitable foundation to aid the areas in which the new bank would do business. Reaction to the raffle has been particularly intense. David Adams called it appalling that the first thing most DFCU members were going to know about the proposed conversion of their credit union to a mutual bank was a disclosure statement accompanied by a ballot and with a raffle incentive. "Frankly we support the Texas regulator's initiative to mandate a 30-day comment period at the credit union before the application even goes," Adams said, "as well as the idea that ballots only be included with the last mailing so that members have time to really consider what they are being asked to do." Time to think versus voting quickly was also the subtext in an exchange of ads that DFCU Owners United and the credit union also began to exchange in local papers last week. DFCU Owners United's open letter ran as a full-page ad in smaller regional papers that serve the areas where DFCU is based, according to Margaret Blohm, one of DFCU Owners United volunteers. "Why convert to a bank? How will member-owners benefit? How will management benefit? Historically, other conversions to banks have shown that it's executive management and board members who make millions in stock options and other compensation," the ads, which ran over Linda Malec's signature, read in part. "And, did you join a credit union only to have it become a bank? I did not!" "It is expected that members will soon receive a packet of disclosure information with a ballot from DFCU Financial," the ad continued in bold text. "I urge you to read all disclosure information very carefully before you vote." For its part, DFCU Financial answered back with an ad of its own. The DFCU notice was smaller and shorter, did not carry NCUA's logo and did not reference the CU becoming a bank. The notice read in part: "DFCU Financial has worked hard for 56 years to meet your ever-expanding needs for personalized financial services. We recently mailed our members detailed information regarding a proposed change in legal structure that will better position us to serve members and the community for years to come.." "Thank you for placing your trust and loyalty in DFCU Financial. We are looking forward to serving you for another 56 years." A spokesman for the Owners United group said the CU had inquired as to their schedule of advertisements as well. The issue of how well, or poorly, DFCU members read their disclosure statement was also on the minds of Michigan's political leadership as well. As of press time, Michigan Governor Jennifer Granholm, various state legislators, the Consumer Federation of America and at least one Michigan Credit Union CEO are scheduled to take the stage at a press briefing to urge DFCU members to carefully read and consider what they are being asked to do in the charter change. The legislators, CFA representative, and the CEO are scheduled to appear in an event in conjunction with the Michigan Credit Union League's governmental affairs conference. Governor Granholm's opinion will be read in a statement from the podium. Both the governor and her husband are members of DFCU Financial, and the governor's statement will not oppose the conversion but will urge DFCU members to read the disclosures carefully and vote in what is clearly their best interest. The legislators will include state senator Ray Basham and other legislators who represent DFCU Financial's legislative district. The CEO will represent the approximately 12 Michigan CUs which have given money to the DFCU Owners United group. It's unclear where the DFCU conversion effort goes from here. On the one level the voting will proceed, but it's unclear whether NCUA will be satisfied with the results of the supervisory committee's investigation or what it might say about it. Until or unless NCUA makes a move, the voting will continue apace until the CU special meeting which has been scheduled for June 21, 2006. DFCU declined the opportunity to comment on the disclosures or the news briefing. -
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